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J.C.Penney (JCP) – Default Concerns

05 February 2014 by HCM

On February 4th, JCP (J.C. Penney Company, Inc. Ltd) published numbers regarding the months of November and December. They are highlighting the difficulties the company is facing in its turnaround and led investors to believe they could continue to sell more but at lower than expected gross margins. Hence a liquidity raise could be in the cards which unsurprisingly pushed the 5 year risk premium higher. But the figures released also seriously increased the prospects of a possible default and 1 year protection jumped to 16 points upfront (it now costs 16% upfront plus an additional 5% running to insure against a default of JCP until March 2015) up from 12 points a few days ago. Selling short dated protection definitely requires a solid credit check.